An unsecured personal loan is money you borrow without providing any security, that you simply repay over a fixed repayment term. You can read more about what they are and how they work in our guide below.
With a personal loan, you can spend it on whatever you like - maybe you fancy a holiday, or you’ve had your eye on the perfect car. You’re not alone in seeking out a personal loan; they’re becoming an increasingly popular way to secure finance for people in the UK. It was reported by Statista, that the majority of adults (32%) had a personal loan for between £5,000 and £9,999 in 2017. And 27% of UK adults borrowed loan amounts between £10,000 and £19,999. Looking at this data, it would seem personal loans aren’t being used for small purchases. When you take out a personal loan, you can use it however you want - from paying for home renovations to consolidating debt!
Our personal loan guide is here to help you understand more about how they work, what the difference is between secured and unsecured and, most importantly, the things you should consider before signing on the dotted line!
We’ve also got some FAQs at the bottom of this page. We aim to equip you with all the knowledge required to make an informed decision.
A personal loan is a lump sum lent to the borrower that is paid back, with fixed interest, within a specific timeframe. Most personal loans are unsecured; this means that the bank or lender does not take your personal assets into account, such as your house.
There is a vast difference between secured and unsecured loans. The best example of a secured loan is a mortgage. When you take out a mortgage, the lender can repossess your house if you fail to make repayments. An unsecured loan is different; the lender or bank does not ask you to provide extra security for your loan, i.e. your house. Instead, the lender or bank will base your borrowing credibility on your credit rating and your current financial situation.
Secured loans are typical for long-term borrowing, and because of this, you can usually end up paying back a lot more than you’ve borrowed - this is because interest accumulates over a more extended period.
A personal loan is much like any other loan in that you pay it back, with interest, in monthly instalments (sadly, zero interest personal loans don’t exist - unless you borrow money from a generous family member...). We’ve detailed the application process below.
We have created an easy-to-use personal loan calculator to help you calculate the cost of the loan.
Before applying, you need to make sure you meet the lender's criteria which can be found on their website. Applications are made online and can include information such as personal details, income and expenditures.
The lender will check and verify your application to make sure the details are correct and that you can afford to pay back the loan. They will also perform a credit check on you. This decision is made quickly, although sometimes they may ask you to send in more documents.
If you are successfully approved, you will be presented with a loan agreement. The lender may offer you less than what you initially applied for. Please review this carefully and make sure you are happy before deciding to accept it or not.
If you accept the offer, you will receive the money directly into your chosen bank account.
Payments will be taken via monthly Direct Debit until the loan is paid in full.
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Personal loan rates and cost will depend on many factors, including how much you borrow, how much time you take to pay it back, and your credit history.
The rate you receive may be different from the rate advertised by lenders. This is because rates are given on the ‘risk’ of the borrower. For example, if you are considered a ‘low risk’ borrower by the lender, you will receive better rates than if you were a ‘high risk’ borrower.
Here are some of the main factors that impact the cost:
The amount you borrow will make a difference to the cost of the loan. Generally, the smaller the loan amount is, the less you will pay in monthly instalments, but they may attract high-interest rates. The larger loan amounts generally carry low-interest rates.
The time you pay it back can have a significant impact on the cost of your loan. Borrowing over a short term will typically carry higher repayments as it is divided into few repayments. However, borrowing over a long term can attract lower repayments (divided into more repayments) and interest rates, but it will cost you more in interest in the long run.
This gives the lender an overview of your financial health. For example, it will show the lender if you’ve missed any payments on other loans and credit cards in the past. If you have a poor credit history, you may get higher interest rates.
If you’re looking to calculate repayments on a personal loan, then look no further! Try our free online calculator to work out the estimated total amount payable and monthly repayments to get a good idea of how much it will cost.
Taking out a personal loan is a decision that shouldn’t be taken lightly. You need to calculate whether you can realistically afford to pay back the loan and the interest that comes with it. Average borrowers pay 1.65 times the amount they borrow - so it’s crucial you do the maths. Not sure if you can afford it? Use our loan calculator tool.
Personal loans can be used to consolidate debt, but if you’re struggling with debt management, you can seek free and impartial advice from the Money Advice Service.
If you’re having second thoughts, take a moment to think about what you’re using the loan for. Is it something you can save up for instead? Do you NEED a loan?
At ThisLender, we act as a broker. We do not charge you to use our loan comparison tool; it is an entirely free service and serves to help you find the best loan deal possible.
Please note: the terms and conditions for each personal loan product are shared with you before you accept the loan offer; read these carefully and ensure you fully understand them. You will also receive all fees and applicable charges from the lender, so you can calculate whether the loan repayments in full are affordable and realistic.
Need debt advice? If you need impartial advice about debt and borrowing, visit the Money Advice Service.
Before you consider applying for a personal loan, you need to weigh up the pros and cons. Just like any financial product, there are advantages and disadvantages. Borrowing money can get you into serious money troubles if you’re unable to make agreed repayments.
Top Tip: It’s always good to check your credit file regularly and before you apply for any type of credit. Improving your credit score will help you access a wider range of financial products and get a better deal. Check your credit report for free at Credit Karma.
The list is endless when it comes to how you can use your personal loan, but they are generally used for larger, one-off purchases. Before you consider taking one out, it’s important that you know you can afford it and that the money will be used responsibly. We have compiled a quick list of circumstances on what you can and can’t use it for.
A personal loan may be suitable for:
However, there are some scenarios that a personal loan may not be suitable for, such as:
Remember: There may be better ways you can raise money, such as saving up or borrowing from family rather than taking on debt. There are other ways too, from selling a few unused items to switching bank accounts. Check out our 10 ways to make cash article for more ideas.
When looking for a personal loan, you need to find the best and the cheapest deal. From low Interest to high - interest rates can vary massively between lenders, so you need to find the financial solution that best suits your needs. Our loan matching service is entirely free to use; it serves as a helping hand for consumers just like you.
Finding a loan product can be confusing, there are so many lenders out there, how do you know which ones can be trusted? At ThisLender, we ONLY work alongside FCA registered UK lenders; we’re making it straightforward for consumers to find, apply for and secure a personal loan.
As most personal loans are unsecured, you might not be able to secure one with a poor credit history or bad credit. Lenders will look for good borrowing history; this can also affect you if you’ve never had any credit. Ultimately, they want to ensure they’ll get their money back, and with bad credit, or no credit history, you could pose a risk to them. Having said that, some UK lenders can offer you a loan, albeit with higher interest rates.
If you have a poor credit history and you’re not eligible for a personal loan, you could consider a guarantor loan, read more about guarantor loans here.
Here are some common questions and answers.
Generally, you can borrow up to £25,000 with a personal loan. This will depend on the lender, whether you use security or not, your credit history and affordability.
Usually from 1 year up to 5 years. However, you may be able to borrow over a period up to 10 years or more depending on the lender. Keep in mind that the longer you borrow for, the lower your monthly costs will be, but you will end up paying more.
APR stands for ‘Annual Percentage Rate’ and is the formula used to work out the cost of credit over 1 year. It combines the interest rate and other lender fees. The higher the APR, the more you’re likely to repay.
Generally, personal loans offer cheaper rates than credit cards. But the rate you will receive will depend on your credit score and personal circumstances.
Yes, if you are looking to upgrade your home in any way, a personal loan is suitable for all home improvements. You can read more on home improvement loans here.
The majority of lenders will offer personal loans that don’t require you to offer security against the loan.
No, a personal loan is not considered as income and is not taxable.
This will depend on your circumstances. It’s a good idea to compare personal loans from both banks and other non-bank lenders to make sure you’re getting the best deal that’s right for your needs.
Mortgage lenders will take all of your debts into consideration when assessing your mortgage application. Keep in mind that the more debt you take on, the less you’ll be able to borrow due to affordability. Interest rates may be impacted too, especially if you miss a payment on your personal loan or other credit facilities.
If you are having financial difficulties or need to speak to someone regarding your financial situation before applying for a loan you can get free and confidential advice from The Money Advice Service, National Debtline or debt charity StepChange.
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Representative 97% APR (fixed)
Representative example: Borrow £1000 for 24 months at 24 equal instalments of £77.48. Total amount to repay £1,859.52. Interest £859.52. Annual interest rate 70% (fixed). APR rates range from 45.3% APR. to 1575% Max APR. Your APR rate will be based on your circumstances.
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